Q1 2024 Apollo Global Management Inc Earnings Call
Operator: Good morning, and welcome to Apollo Global Management's first quarter 2024 earnings conference call. During today's discussion, all callers will be placed in listen-only mode, and following management's prepared remarks, the conference call will be open to questions. Please limit yourself to one question, then rejoin the queue.
Good morning, and welcome to Apollo Global management's first quarter 2024 earnings conference call.
During todays discussion all callers will be placed in listen only mode and following management's prepared remarks. The conference call will be opened for questions. Please limit yourself to one question then rejoin the queue. This conference call is being recorded.
Operator: This conference call is being recorded. This call may include forward-looking statements and projections, which do not guarantee future events or performances. Please refer to Apollo's most recent SEC filings for risk factors related to these statements. Apollo will be discussing certain non-capital measures on this call, which management believes are relevant in assessing the financial performance of the business. These non-GAAP measures are reconciled to GAAP measures in Apollo's earnings presentation, which is available on the company's website.
This call May include forward, looking statements and projections, which do not guarantee future events or performances.
Please refer to Apollo's most recent SEC filings for risk factors related to these statements.
Apollo will be discussing certain non-GAAP measures on this call, which management believes are relevant in assessing the financial performance of the business. These non-GAAP measures are reconciled to GAAP measures in Apollo's earnings presentation, which is available on the company's website.
Operator: Also note that nothing on this call constitutes an offer to sell or a solicitation for an offer to purchase an interest in any Apollo funds. I will now turn the call over to Noah Gunn, Global Head of Investor Relations.
Also note that nothing on this call constitutes an offer to sell or a solicitation for an offer to purchase an interest in any Apollo fund I will now turn the call over to Noah Gunn Global head of Investor Relations.
Noah Gunn: Thanks, operator, and welcome again everyone to our call. Earlier this morning, we published our earnings release and financial supplement on the investor relations portion of our website. We reported strong first quarter financial results, which included FRE of 462 million dollars, or 75 cents per share, and SRE of 817 million dollars, or 1 dollar and 32 cents per share. Together these two earnings streams totaled 1.3 billion dollars, increasing 18% year over year.
Noah Gunn: Thanks, Operator, and welcome again, everyone to our call earlier. This morning, we published our earnings release and financial supplement on the Investor Relations portion of our website. We reported strong first quarter financial results, which included FRE of $462 million or <unk> 75 per share and SRA of.
Noah Gunn: $817 million or $1 32 per share together. These two earnings stream totaled $1 3 billion, increasing 18% year over year.
Noah Gunn: Bind with principal investing income holdco financing costs and taxes, we reported adjusted net income of $1 1 billion or $1 72 per share.
Noah Gunn: Up 26% year over year. Additionally.
Noah Gunn: Additionally, we declared a quarterly cash dividend of approximately <unk> 46 per share for the first quarter, reflecting the new higher annual run rate level of $1 85 per share as previously announced.
Noah Gunn: Combined with principal investing income, hold co-financing costs, and taxes, we reported adjusted net income of 1.1 billion dollars, or 1 dollar and 72 cents per share, up 26% year over year. Additionally, we declared a quarterly cash dividend of approximately $0.46 per share for the first quarter, reflecting the new higher annual run rate level of $1.85 per share as previously announced. Joining me this morning to discuss our results in further detail are Marc Rowan, CEO; Jim Zelter, Co-President, and Martin Kelly, CFO.
Speaker Change: Joining me this morning to discuss our results in further detail, our Marc Rowan CEO, Jim Delta Co President and Martin Kelly CFO before handing it over I'd like to formally announced that we are hosting an investor day in New York on Tuesday October one.
Noah Gunn: Before handing it over, I'd like to formally announce that we are hosting an Investor Day in New York on Tuesday, October 1st. We will provide additional detail in the coming months and hope that you will join our broader team as we discuss the exciting long-term growth opportunities in front of us. And with that, I'll now hand it over to Marc.
Marc Jeffrey Rowan: We will provide additional detail in the coming months and hope that you will join our broader team as we discuss the exciting long term growth opportunities in front of us and with that I'll now hand, it over to Mark. Thank you Darla and good morning.
Marc Jeffrey Rowan: Thank you, Noah, and good morning. As Noah detailed, the first quarter results were strong. Personally, I was very pleased. FRE was $462 million, up 16% year over year. And you will hear a little bit from me, but mostly from Jim, there is momentum in every part of the business. For SRE, we reported $817 million, up 19% year over year.
Marc Jeffrey Rowan: As Noah detailed first quarter results were strong.
Mark: Personally I was very pleased FRE was $462 million up 16% year over year, and you will hear a little bit for me, but mostly from Jim There is momentum in every part of the business.
Mark: For SRT, we reported $817 million up 19% year over year.
Marc Jeffrey Rowan: Keynote for the quarter, a record inflow of $20 billion for the quarter. I'm going to spend some time providing color on the quarter, but then quickly move to the outlook for the year. In the quarter, particularly with respect to SRE, we had three things going on. The first was really good; the team generated, as I suggested, $20 billion of inflows diversified across their funding channels, particularly three of their funding channels. While they generated what they needed to, and origination, as you will hear, was very strong, they were somewhat mixed in terms of timing.
Mark: Keynote for the quarter, a record inflow of $20 billion for the quarter.
Marc Jeffrey Rowan: The generation of liabilities took place at a relatively even pace, whereas most of the origination was back-end loaded, resulting in higher cash balances for the quarter, which we expect to even out across the year. The second alternative had a slight underperformance versus what we historically have normalized or come to expect and normalize. But the biggest action in the quarter was our move to significantly de-risk the floating rate book. Recall that we run a common sense strategy when rates are very low.
Mark: I'm going to spend some time, providing color on the quarter, but then quickly move to the outlook for the year.
Mark: In the quarter, particularly.
Mark: With respect to FRE, we had three things going on the <unk>.
Mark: First really good the team generated as I suggested 20 billion of inflows diversified across their funding channels, particularly three of their funding channels.
Mark: While they generated what they needed to and origination as you will hear was very strong they were somewhat mixed in terms of timing the generation of liabilities took place at a relatively even pace, whereas most of the origination was backend loaded resulting in higher cash balances for the quarter, which we expect to even out across.
Mark: The year.
Mark: The second alternatives had a slight underperformance versus what we historically have normalized or come to expect in normalized.
Mark: But the biggest action in the quarter was our move to significantly de risk the floating rate book.
Mark: Recall that we run a common sense strategy.
Mark: When rates are very low we have been able to earn very nice rates of return.
Marc Jeffrey Rowan: We have been able to earn very nice rates of return without maximizing current period SRE and putting on significant floating rate exposure, which gives us upside as rates normalize. As you would expect, as rates have returned to more normalized levels. We use this as an opportunity to significantly reduce our exposure. Exposure is now about 16 billion dollars, probably where we're going to leave it for the near term. Sensitivity of 100 basis points of move at floaters at this point is less than 5% of SRE.
Mark: Without maximizing current period sorry.
Mark: And putting on significant floating rate exposure, which gives us upside as rates normalize you should expect as rates have returned to more normalized levels. We.
Mark: We use this as an opportunity to significantly reduce our exposure exposure now is about <unk>.
Mark: $16 billion.
Mark: Right.
Speaker Change: Probably where we're going to leave it for the near term.
Speaker Change: Sensitivity of a 100 basis points move in floaters at this point is less than 5% of FRE.
Marc Jeffrey Rowan: You should expect us to continue to move floating rate exposure up and down, reflecting first the nature of our business and the fact that we do not have, while on the upside we have linear participation in rates, on the downside, we do not have linear participation in rate falls. And second, there is a nice hedging element to having a certain amount of floating rate exposure vis-à-vis performance of liabilities during changes in interest rates. All in all, a really strong quarter and one that gives me increased confidence that the outlook that we sketched out for all of you coming into this year will be met. I view this as being on-trend.
Speaker Change: You should expect us to continue to move floating rate exposure up and down reflecting first the nature of our business and the fact that we do not have while on the upside we have linear participation in rates on the downside, we do not have linear participation rate falls.
Speaker Change: And second there is a nice hedging element to having a certain amount of floating rate exposure vis vis performance of liabilities during changes of interest rates.
Speaker Change: All in all a really strong quarter and one that gives me increased confidence that the outlook that we sketched out for all of you coming into this year, we will be met.
Marc Jeffrey Rowan: FRE, we're expecting 15 to 20% growth in a non-flagship PE year versus the 25% we grew in 2023. We have plenty of opportunities to invest in the business, and the trade-off as to where we end up between 15 and 20% will be, in my opinion, based on how much we choose to invest in the future. SRE, we are targeting low double-digit growth, which we believe reflects the long-term run rate growth rate of our retirement services business. We do expect to still meet or exceed the $7 billion of organic inflows in 2024.
Speaker Change: I view this as on trend FRE, we're expecting 15% to 20% growth in our non flagship pay year versus the 25%. We grew in 'twenty three we have plenty of opportunities to invest in the business and the trade off as to where we ended up between 15 and 20% will be in my opinion based.
Speaker Change: On how much we choose to invest in the future.
Speaker Change: Sorry, we are targeting low double digit growth, which we believe reflects the long term run rate growth rate of our retirement services business, we do expect to still meet or exceed the $70 billion of organic inflows in 2024.
Marc Jeffrey Rowan: If I were to highlight momentum in the business, I'd pick out the two or three things that I think are really exceptional. The first, the lifeblood of our business, is origination. $40 billion of origination for the quarter, roughly half from our platform. Platforms, as you recall, are unique to Apollo and represent a recurring and enduring and growing source of origination.
Speaker Change: If I were to highlight momentum in the business I'll pick out the two or three things that I think are really exceptional the first the lifeblood of our business is origination.
Speaker Change: $40 billion of origination for the quarter roughly half from our platforms platforms as you recall, our unique to Apollo and represent a recurring and enduring.
Speaker Change: And growing source of origination.
Marc Jeffrey Rowan: We, in my opinion, can only grow as fast as we can originate assets that provide excess return per unit of risk. And this is a significant focus for the firm. Capital Formation was also very strong for the quarter. Before I touch on the numbers, I'll touch on the philosophy.
Speaker Change: We in my opinion can only grow as fast as we can originate assets that provide excess return per unit of risk.
Speaker Change: And this is a significant focus for the firm.
Speaker Change: Capital formation.
Speaker Change: Was also very strong for the quarter.
Speaker Change: Before I touch on the numbers I'll touch on the philosophy.
Speaker Change: Capital formation.
Marc Jeffrey Rowan: Capital formation is an important part of our business, but we have to be very careful to be measured on capital formation and not simply accept money at all costs at all times. We need to invest it prudently, particularly in new and growing segments where we are building investor trust. For the quarter, capital formation was $40 billion.
Speaker Change: Is an important part of our business, but we have to be very careful to be measured in capital formation and not simply accept money at all costs at all times.
Speaker Change: We need to invest it prudently.
Speaker Change: Particularly in new and growing segments, where we are building Investor Trust.
Speaker Change: For the quarter.
Speaker Change: Capital formation was 40 billion rough.
Marc Jeffrey Rowan: Roughly $20 billion coming from retirement services and $20 billion coming from asset management. In the asset management business, there was a lot of momentum in global wealth, in particular, very strong performance at ADS. Recall that ADS is our 100% first lien. Loweth Leverage, run defensively.
Speaker Change: Roughly $20 billion coming from retirement services and $20 billion coming from asset management.
Speaker Change: In the asset management business, there was a lot of momentum in global wealth in particular very strong performance at Aes recall that <unk> is our 100% first lien.
Speaker Change: Lowest leverage run defensively.
Marc Jeffrey Rowan: Direct Lending Business. The team there has done a spectacular job. There's also momentum and institutional support. I'd pick out
Speaker Change: Direct lending business the.
Speaker Change: The team there has done a spectacular job.
Speaker Change: Theres also a momentum in institutional I would pick out.
Marc Jeffrey Rowan: Asset-Based Finance and Third-Party Insurance as highlights for the quarter. Asset-backed finance is directly tied to our capacity to originate, as many of the products that come off our platforms end up or are consumed in asset-backed forms. It is also tied to our philosophy of wanting 25% of everything and 100% of nothing, which produces unique alignment with our third-party insurance and third-party institutional and other clients. ABF is particularly well suited to insurance company balance sheets. There were $8 billion of ABF flows in Q1, including a multi-billion dollar strategic investment from a like-minded leading financial institution. In summary, momentum has been building in the quarter, and I believe we are set for an on-track, consistent with guidance year.
Speaker Change: Asset based finance and third party insurance as highlights for the quarter.
Speaker Change: Asset backed finance is directly tied to our capacity to originate as many of the products that come off our platforms end up or are consumed in asset back form.
Speaker Change: It is also tied to our philosophy of wanting 25% of everything at 100% of nothing which produces unique alignment with our third party insurance in third party institutional and other clients.
Speaker Change: ABF is particularly well suited to insurance company balance sheets.
Speaker Change: There were $8 billion of ABF flows in Q1, including a multibillion dollar strategic investment from a like minded leading financial institution.
Speaker Change: In summary.
Speaker Change: Momentum has been building in the quarter and I believe we are set for an on track consistent with guidance here.
Marc Jeffrey Rowan: Well this year is interesting, and Noah's already highlighted our Investor Day, so I'm going to share with you how the team thinks about the future. We are in a really exciting industry. The two big pillars of growth that we see ahead of us are first, retirement. Like it or not, we're all getting older.
Speaker Change: While this year is interesting and no as already highlighted our investor day.
Speaker Change: Share with you how the team thinks about the future.
Speaker Change: We are.
Speaker Change: In a really exciting industry.
Speaker Change: The two big.
Speaker Change: Pillars of growth that we see ahead of us our first retirement like it or not we're all getting older.
Marc Jeffrey Rowan: The need for guaranteed lifetime income, guaranteed retirement income, everywhere in the world. [inaudible] Retirement is ultimately built on a foundation of fixed income. The second and perhaps bigger trend in our business is a wholesale revisiting by investors of the ABC's of Portfolio Construction. And when I say investors, I mean institutions and individuals. We are an industry that has been built out of the smallest asset allocation of our institutional clients. In a very simple way, I think of our institutional clients as being primarily allocated, at least half, to publicly traded equities.
Speaker Change: The need for guaranteed lifetime income guaranteed retirement income.
Speaker Change: Everywhere in the world.
Speaker Change: Exceeds what is currently provided whether you look at aging population, whether you look at the decline of defined benefit plans, whether you look at the inadequacy or lack of preparation of governments around the world.
Speaker Change: Continue to believe that retirement is going to be a massive driver of our business retirement is ultimately built on a foundation of fixed income.
Speaker Change: The second and perhaps bigger trend in our business.
Speaker Change: Is a wholesale revisiting by investors of the Abcs.
Speaker Change: Portfolio construction.
Speaker Change: When I say investors I mean institutions and individuals.
Speaker Change: We are an industry that has been built.
Speaker Change: Out of the smallest asset allocation of our institutional clients.
Speaker Change: In a very simple way I think of our institutional clients as being primarily allocated at least half to publicly traded equities.
Marc Jeffrey Rowan: 30% allocated to publicly traded fixed income, and 20% allocated to everything else, meaning alternatives. Our entire industry grows has been out of that 20% bucket. 20% is a so-called private or alternative bucket that made sense in a world where private was risky and public was safe.
Speaker Change: 30% allocated to publicly traded fixed income and 20% allocated to everything else, meaning alternatives.
Speaker Change: Our entire industry growth has been out of that 20% bucket.
Speaker Change: 20%.
Speaker Change: Is the so called private alternative bucket made sense in the world.
Speaker Change: Where private was risky and public was safe.
Marc Jeffrey Rowan: I believe we are revisiting the most fundamental concepts that underlie our financial markets. Private now goes from AA to levered equity, and public, which was 8,000 public companies is now 4,000 public companies, and the reality is that 10 represent 35% of the S&P 500 and unique concentration to two or three companies.
Speaker Change: I believe we are revisiting the most fundamental concepts that underlie our financial markets private now goes from double AA to Levered equity.
Speaker Change: And public which was 8000 public companies is now 4000 public companies and the reality is.
Speaker Change: 10 represents 35% of the S&P 500, and unique concentration to two or three companies.
Marc Jeffrey Rowan: Investors are already looking to their fixed income bucket, which historically has been off limits, and starting to ask questions about what the difference is between public and private. If both are safe and risky, this is just a question of liquidity trade-off, which is actually getting much, much closer. Liquidity in publicly traded fixed income is at record lows, but liquidity for private credit is actually increasing daily. We are not saying that we're going to pass each other.
Speaker Change: Investors.
Speaker Change: Are already looking to their fixed income bucket, which historically has been off limits.
Speaker Change: And starting to ask questions about what is the difference between public and private.
Speaker Change: If both are safe and risky.
Speaker Change: This is just a question of liquidity tradeoff and liquidity tradeoff.
Speaker Change: He is actually getting much much closer liquidity and publicly traded fixed income is at record lows liquor.
Speaker Change: Liquidity for private credit is.
Speaker Change: Increasing daily.
Speaker Change: We are not I'm, not saying that we're going to pass each other but the notion that investors will begin to allocate to private markets.
Marc Jeffrey Rowan: But the notion that investors will begin to allocate to private markets. An entire asset bucket that they have not historically allocated to private markets presents our entire industry with just an unusual path toward extreme growth. I believe the same will happen in the equity box.
Speaker Change: An entire asset bucket that they have not historically allocated to private markets.
Speaker Change: Presents our entire industry with just an unusual path toward extreme growth.
Speaker Change: I believe the same will happen in the equity bucket and.
Marc Jeffrey Rowan: An investor who wants exposure to the economy, you get it in the public market. Now, more than half the economy is in private markets. While that allocation may not be to private equity, private equity being a product, a 10-year locked-up fund seeking very high rates of return with leverage, I believe investors increasingly will seek out equity exposure in private markets in other forms that exist today. And it is our job, in our industry, to create products for the future to allow investors to access 100% of the economy, given that it is no longer in the public market. For us to succeed. This is not really a question of opportunity; this is a question of execution.
Speaker Change: An investor who wants exposure to the economy used to get it in public markets now more than half. The economy is in private markets, while that allocation may not be to private equity.
Speaker Change: Private equity being a product a 10 year locked up fund seeking very high rates of return with leverage.
Speaker Change: I believe investors increasingly will seek out equity exposure in private markets.
Speaker Change: In other forms that exists today and it is our job as in our industry to create the products for the future to allow investors to access a 100% of the economy.
Speaker Change: Given that it is no longer in public markets.
Speaker Change: For us to succeed this is not really a question of opportunity. This is a question of execution.
Marc Jeffrey Rowan: Execution starts with origination. We can only grow our business as fast as we can originate. As you heard, $40 billion for the quarter. We have discussed publicly the 125 million goal of origination for the year. Our original five-year plan had us getting to $150 billion by 2026, which I hope we will exceed. And no doubt Investor Day will exceed $200 million as our mid-range target for where we need to be in origination. Again, growth in our business is limited only by our capacity to eliminate bad risk and originate good risk. The second thing we need to do is to prepare for a change in how capital is formed.
Speaker Change: Execution starts with origination we can only grow our business as fast as we can originate.
Speaker Change: As you heard $40 billion for the quarter.
Speaker Change: We have discussed publicly a $125 billion goal of origination for the year.
Speaker Change: Our original five year plan.
Speaker Change: Pat us getting to a $150 billion by 2026, which I hope we will exceed.
Speaker Change: And no doubt Investor day will exceed $200 million as our mid range targets for where we need to be in origination.
Speaker Change: Again growth in our business is limited only by our capacity to eliminate to originate good risk the.
Speaker Change: The second thing we need to do is to prepare for a change in how capital is formed cap.
Marc Jeffrey Rowan: Capital, the change is already happening given the importance of global wealth to our industry. And we will be one of the successful players in that industry. And we value these relationships and run the business on a long-term basis. We are essentially needing to build whole different ways of communicating with our clients.
Speaker Change: Capital the change it is already happening given the importance of global wealth to our industry.
Speaker Change: And we will be one of the successful players in that industry and we value these relationships and run the business on a long term basis.
Speaker Change: We are essentially needing to build.
Speaker Change: Different ways of communicating with our clients historically as you know we've.
Marc Jeffrey Rowan: Historically, as you know, we've raised money from our institutional clients out of their alternative bucket, and increasingly, we will need to cover their fixed income bucket and eventually their equity bucket. I believe we are well positioned to do this, and this is coming at a good time for us and for our industry. And also, if one steps back and thinks about where capital needs are in the world, whether it's infrastructure, whether it's the energy transition, or whether it is to adapt to new technologies of data centers and the need for power, All three of those things represent long-term financing. I do not believe that long-term financing is well-suited to the shorter-nature balance sheets of the banking system, nor to the daily liquid fund market.
Speaker Change: Raised money from our institutional clients out of their alternatives bucket and increasingly we will need to cover their fixed income bucket and eventually their equity bucket I believe we are well positioned to do this and this is coming at a good time for us.
Speaker Change: And for our industry.
Speaker Change: And also if one steps back and thinks about where capital need is in the world, whether it's infrastructure, whether its energy transition or whether it is to adapt to new technologies of Datacenters and the need for power.
Speaker Change: All three of those things represent long term financing.
Speaker Change: I do not believe that long term financing is well suited to the shorter nature balance sheets of the banking system.
Speaker Change: Nor to the daily liquid fund market.
Marc Jeffrey Rowan: Increasingly, these long-term capital needs will be matched with long-term funding from our retail and institutional clients. So again, number one, origination; number two, capital formation. And finally, product development, particularly in The Migration of the Fixed Income Bucket to private markets, is already happening, and it's happening faster than I thought. In some ways, we expect that because there are signposts there. Rating agencies rate things in public markets and private markets, and so investors, as they begin to think about this transition, can look to credit ratings and others as a sign of comparability between public market and private market risk.
Speaker Change: Increasingly these long term capital needs will be matched with long term funding from our retail and institutional clients.
Speaker Change: So again number one origination.
Speaker Change: Origination number two capital formation, and finally product development, particularly in equity.
Speaker Change: Migration of the fixed income bucket.
Speaker Change: Two private markets is already happening.
Speaker Change: And it is happening faster than I thought.
Speaker Change: In some ways, we expect that because there are signposts their rating agencies rate things in public markets and private markets and so investors as they begin to think about this transition can look to credit ratings and others.
Speaker Change: As a sign of comparability between public market and private market risk.
Marc Jeffrey Rowan: Equity markets lack the same sort of signposting, so it is up to us as an industry to develop those kinds of products. And I'm excited about what the future looks like, not just in transition in the credit bucket but also in the equity bucket. In summary.
Speaker Change: Equity markets lack the same sort of signposts it is up to us as an industry to develop those kinds of products and I'm excited about what the future looks like not just in transition in the credit bucket, but also in the equity bucket.
Speaker Change: In summary.
Marc Jeffrey Rowan: I like the hand we're playing. We are incredibly well positioned in retirement services with a decade-long lead over most of our competition. The work we have done on fixed income replacement and private investment grade, I believe is particularly well suited to the transition that is taking place as institutions and individuals migrate their historically 100% public fixed income exposure to public and private. And I believe we are well positioned with our hybrid business to begin to address the migration that I expect to take place in equity.
Speaker Change: I like the hand, we're playing.
Speaker Change: We are incredibly well positioned and retirement services with a decade long lead.
Speaker Change: Over most of our competition.
Speaker Change: The work we have done on fixed income replacement and private investment grade I believe is particularly well suited.
Speaker Change: For the transition that is taking place as institutions and individuals migrate there historically, 100% public fixed income exposure to public and private.
Speaker Change: And I believe we are well positioned with our hybrid business to begin to address the migration that I expect to take place in equity.
James Charles Zelter: Jim, it's over to you. Great. Thanks, Marc. Let me dive into a few more details. The foundation of our business is built upon delivering strong investment returns for our clients, and we've historically done so by upholding a purchase price matters investment philosophy across market cycles and strategies, which embraced downside protection structure in return for access return per unit of restriction. Most recently, the industry has evolved into a paradigm marked by higher for longer rates, tighter spreads, and Extreme Valuations, and we've responded accordingly.
Speaker Change: Jim over to you Greg Thanks, Mark let me dive into a few more details the foundation of our business is built upon delivering strong investment returns for our clients.
Greg: Historically done so by upholding our purchase price matters investment philosophy across market cycles, and strategies, which embraced downside protection structure and return excess return per unit of risk.
Greg: Most recently the industry has evolved in 200 paradigm marked by higher from Oregon rates tighter spreads and.
Greg: In extreme valuations and we've responded accordingly.
James Charles Zelter: Over the last several quarters, we focused on larger companies and transactions at the top of the capital structure while employing less leverage than others in the industry. Marc mentioned ADS, Apollo Debt Solutions, a great example of that, where we produced a 14.5% return over the last year but a conservatively levered balance sheet of 0.6, with a 100% corporate loan portfolio.
Greg: Over the last several quarters, we focused on larger companies in transactions at the top of the capital structure, while employing less leverage than others in the industry Mark mentioned the eds apologize solutions is a great example of that where we produced a 14, 5% return over the last year, but a considerably.
Greg: Levered balance sheet of <unk>, six with 100% corporate loan portfolio.
James Charles Zelter: Additionally, we continue to generate meaningful excess return in this intersection of equity and credit, which we define as hybrid, driven by a variety of structural changes and inefficiencies in the market. Our two flagship strategies in this area, the Accord Series and the Hybrid Value Series, have generated particularly strong returns, appreciating 4% in the first quarter and more than 16% over the last year. Alongside investment performance, capital formation is a critical driver of our growth.
Greg: Additionally, we continue to generate meaningful excess return and this intersection of equity in credit, which we define as hybrid driven by variety of structural changes and inefficiencies in the market. Our two flagship strategies in this area. The accord series in the hybrid value series have generated particularly strong returns appear.
Greg: <unk>, 4% in the first quarter and more than 16% over last year.
Greg: Alongside of investment performance capital formation as a critical driver of our growth we.
James Charles Zelter: We generated strong inflows across the business in the first quarter, as Marc highlighted, including $20 billion from our asset management business and $20 billion from Athene. And organic inflows, excluding any leverage or segment transfers, totaled $33 billion, which is on track with our $120 billion target for the year.
Greg: We generated strong inflows across the business in the first quarter as Mark highlighted including 20 billion from our asset management business and $20 billion from Athene and organic inflows, excluding any leverage where segment transfers totaled 33 billion, which is on track with our 120 billion target for the year.
James Charles Zelter: Double-clicking on this third-party fundraising, credit-oriented strategies were very much in focus and accounted for more than 80% of capital raised in the quarter. Some of the more significant contributors included $3 billion to broadly support the growth of the Atlas ecosystem. $3 billion for high-grade alpha separately managed accounts $2 billion for large-cap direct lending and our recently launched asset-backed finance. As Marc mentioned, it is worth double-clicking on the fact that we raised $6.5 billion of capital from third-party insurers, reflecting the significant inroads we've made in this important growth area over the last handful of years.
Greg: Double clicking on this third party fundraising credit oriented strategies were very much in focus and accounted for more than 80% of capital raised in the quarter.
Greg: Some of the more significant contributors included 3 billion to broadly support the growth of the Atlas ecosystem.
Greg: $3 billion for high grade Alpha separately managed accounts 2 billion for large cap direct lending and our recently launched asset base asset backed finance firm.
Greg: As Mark mentioned it is worth double clicking on the fact that we raised six and a half doing in of the capital from third party insurers, reflecting the significant roads inroads. We've made in this important growth area over the last handful of years, we're focused on delivering strategies to sit at the intersection of the themes unique SRA.
James Charles Zelter: We're focused on delivering strategies that sit at the intersection of the theme's unique SRE playbook and Apollo's broad asset management capabilities, namely investment-grade private credit, which we believe is ideally suited to these insurance company investment portfolios. To illustrate the scale of our alpha-generating capabilities, we've originated close to 80 billion in assets through platforms and corporate solutions over the last 12 months, which has generated between 150 and 200 basis points of excess spread versus comparatively rated liquid credits.
Greg: Playbook, and Apollo's broad asset management capabilities, namely investment grade private credit, which we believe is ideally suited for these insurance company investment portfolios.
Greg: To illustrate the scale of our alpha generating capabilities, we've originated close to $80 billion of assets through platforms in corporate solutions over the last 12 months, which has generated between 150 and 200 basis points of excess spread versus comparatively rated liquid credits as.
James Charles Zelter: As we continue to grow in these debt origination capabilities, we expect there will be growing interest from third-party insurers to invest alongside us in the full spectrum of our ecosystem, a dynamic we've started to see. And all this works because of our alignment with Athene, which is critical to our value proposition. Moving on to global wealth, which is a strategic and growing contributor to our capital formation activity, and on our journey in building out this business, we've realized there are five crucial components in order to succeed: Investment Performance, Education.
Greg: As we continue to grow in these debt origination capabilities. We expect it will be growing interest from third party insurers to invest alongside and the full spectrum of our ecosystem.
Greg: Dynamic we've started to see and all of this works because of our alignment with Athene, which is critical to our value proposition.
Greg: Moving on to global wealth, which is a strategic and growing contributor of our capital formation activity.
Greg: Our journey in building out this business, we've realized <unk> five crucial components in order to succeed in.
Greg: Investment performance.
Greg: Education distribution.
James Charles Zelter: Distribution Capabilities, Technology, and a Diversified Product List, all of which we've successfully established over the last 24 months. We believe that only a small group of firms can deliver on all five, and with continued strategic focus and investment, we see ourselves among the best positioned for long-term success. The numbers bear this out as we've more than doubled our run rate fundraising level with our holistic sweep of products. Monthly inflows approached $1 billion in April, a meaningful increase from approximately $650 million just a quarter ago and less than $400 million a year ago. As I mentioned, one of the primary drivers of this activity has been our flagship corporate direct lending offering, ADS. April subscriptions totaled over $500 million, bringing year-to-date subscriptions to approximately $1.7 billion.
Greg: Who should capabilities technology, and a diversified product.
Greg: List all of which we have successfully established over the last 24 months.
Greg: We believe in only a small group of firms can deliver on all five and with continued strategic focus on investment we see ourselves among the best positioned for long term success.
Greg: The numbers bear this out as we've more than doubled our run rate fund raising level with our holistic suite of products.
James Charles Zelter: And this represents approximately a 400% increase in flows year-to-date compared to last year. Part of the step up reflects recent market share gains in the non-traded BDC space, with ADS capturing 17% of total inflows in 2024 so far, compared to only 10% at the run rate in the fourth quarter. This overall growth has been enabled by leading investment performance, combined with our expanding distribution footprint and attractive yield. The next step in the expansion of our credit-focused products set within Global Wealth Channel, we're on track to launch a new asset-backed finance vehicle in the coming months. Apollo Asset Backed Credit Company, or ABC, is a semi-liquid turnkey solution designed to provide accredited investors to access our differentiated origination capabilities and build on the initial traction we've seen in our broader asset-backed franchise.
Greg: Monthly <unk>.
Greg: Inflows approached $1 billion in April a meaningful increase from approximately $650 million, just a quarter ago and less than $400 million a year ago.
Greg: As I mentioned one of the primary drivers of this activity has been our flagship corporate direct lending offering Avs April subscriptions totaled over 500 million, bringing year to date subscriptions to approximately $1 7 billion.
Greg: This represents approximately a 400% increase inflows year to date compared to last year.
Greg: Part of the step up reflects recent market share gains in the non traded BDC space with avs, capturing 17% of total inflows in 2024, so far compared to only 10% of the run rate in the fourth quarter.
Greg: This overall growth has been enabled by leading investment performance combined with our expanding distribution footprint and an attractive yield.
Greg: The next step in the expansion of our credit focused product set within global wealth channel. We're on track to launch a new asset backed finance vehicle in the coming weeks.
Greg: Apollo asset backed credit company or ABC.
Greg: As a semi liquid turnkey solution designed to provide our credit investors across our differentiated access our differentiated origination capabilities and build on the initial traction we've seen in our broader asset backed franchise.
James Charles Zelter: We believe the breadth and scale of our proprietary imagination ecosystem, not just for sourcing from Wall Street, will position us to be a market leader in this nascent and important growth area of the global wealth market. Importantly, we structured ABC as an operating company, enabling us to access our full range of origination capabilities versus other traditional private credit structures. And finally, Apollo Aligned Alternatives, better known as AAA, is our semi-liquid equity replacement strategy, and continues to be an important part of our global wealth. We raised $700 million of capital in the first quarter and continue to see strong fundraising momentum.
Greg: We believe the breadth and scale of our proprietary origination ecosystem not just for sourcing from Wall Street will position us to be a market leader in this nascent an important growth area of the global wealth market.
Greg: Importantly, we structured ABC as an operating company, enabling us to access our full range of origination capabilities versus other traditional private credit structures.
Greg: And finally, our Paolo aligned alternatives better known as AAA is our semi liquid equity replacement strategy continues to be an important part of our global wealth offering we raised $700 million of capital in the first quarter and continued to see strong fund raising momentum we have a pipeline of new distribution <unk>.
James Charles Zelter: We have a pipeline of new distribution partners preparing to launch the fund over the next course of the year. And interestingly, we're also seeing growing interest from the consultant community and insurance companies as a cost-effective, scalable solution for private market exposure. Stepping back for a moment, we've observed that many in our industry have Discovered the Language of Origination.
Greg: Preparing to launch the fund over the next course of the year and interesting.
Greg: We're also seeing growing interest from the consultant community and insurance companies as a cost effective.
Greg: <unk> solution for private markets exposure.
Greg: Stepping back for a moment, we've observed that many in our industry have.
Greg: Discovered the language of origination.
James Charles Zelter: As a result, our definition of fixed income replacement and private credit, a $40 trillion addressable market, has become mainstream and distinct from the traditional view of private credit. We were pioneers of these concepts 36 months ago and expect to continue blazing the path forward for this important area of secular growth. As part of that, scaling our debt origination volume production is a strategic focus, and our quarterly results highlight that we're continuing to make meaningful progress. As Marc mentioned, total debt origination volumes of nearly $120 billion over the last 12 months are up almost 40% compared with the prior year period.
Greg: As a result, our definition a definition of fixed income replacement and private credit of 40 trillion addressable market has become mainstream and distinct from the traditional view of private credit.
Greg: We were pioneers of these concepts 36 months ago and expect to continue blazing the path forward for this important area of secular growth.
Greg: As part of that scaling our debt origination volume production is a strategic focus and our quarterly results highlight that we're continuing to make meaningful progress.
Greg: As Mark mentioned total debt origination volumes of nearly 120 billion over the last 12 months 12 months is up almost 40% compared with our prior year period.
James Charles Zelter: As a reminder, we originate assets across our yield ecosystem through three main channels, the traditional channel, platforms, and corporate solutions. And more recently, we've identified partnerships with other financial institutions as the fourth avenue that we plan to expand over time. Additionally
Greg: As a reminder, we originate assets across our yield ecosystem through three main channels the traditional channel.
Greg: That forms and corporate solutions and more recently, we've identified partnerships with other financial institutions is the fourth Avenue that we plan to expand overtime. Additionally.
Greg: Additionally.
James Charles Zelter: We have expanded our focus on the fifth leg, the broad equity and hybrid ecosystem, as well, which you will hear more from us about in the future. Over the past year, our platform ecosystem has been the primary driver of origination growth, having roughly doubled volume production over that period. Atlas SP, a warehouse finance and securitized products business, has been the major driver of that activity. One notable win to highlight in the first quarter was the $8 billion purchase of seller financing facilities from UBS. We acquired this portfolio at an attractive excess spread for IG-equivalent risk, which also proved accretive and attractive to third-party investors as we materially oversubscribed on half the trade and distributed accordingly.
Greg: We have expanded our focus on the fifth leg, the broad equity and hybrid ecosystem as well, which you will hear more from us in the future.
Greg: Over the past year, our platform ecosystem has been the primary driver of origination growth, having roughly doubled volume production over that period.
Greg: Atlas SP, our warehouse finance and securitized products business has been a major driver of that activity. One notable wins to highlight in the first quarter was the 8 billion purchase of seller financing facilities from UBS, we have.
Greg: Wireless portfolio, and an attractive excess spread for IAG equivalent risk.
Greg: Which also proved accretive and attractive to third party investors as we materially oversubscribed on half the trade and distributed accordingly.
James Charles Zelter: Looking forward, with the Atlas business fully operational, independent, and armed with a significant amount of strategic capital, both debt and equity, we're focused on meaningfully scaling that platform. Additionally, while platforms are an essential component of our origination ecosystem, we're also highly focused on growing our corporate solutions platform and business. We're investing a tremendous amount of time with a broad array of the largest, most sophisticated companies to educate them on the benefits of our multifaceted credit toolkit or toolbox and the benefits it can provide, namely speed, certainty, size, and customization, and we're beginning to see those efforts bear tremendous fruit. And finally, we believe that partnerships will become a growing contributor of our origination capacity over time.
Greg: Looking forward with the Atlas business fully operational independence, and armed with a significant amount of strategic capital both debt and equity we're focused on meaningfully scaling that platform.
James Charles Zelter: Our platforms are an essential component of our origination ecosystem. We're also highly focused on growing our corporate solutions platform and business. We're investing a tremendous amount of time with a broad array of the largest most sophisticated companies to educate them on the benefits of our multi faceted credit toolkit.
James Charles Zelter: Toolbox.
Greg: Benefits it can provide namely speed <unk>.
James Charles Zelter: Certainty size and customization and we're beginning to see those efforts bear tremendous fruit.
Greg: And finally, we believe that partnerships will become a growing contributor of our origination capacity overtime here.
James Charles Zelter: Historically, and especially over the last several years, we believe we've been on the cutting edge of strategic dialogue with various financial institutions. We are seeking to extend a vast array of solutions to these firms in a partnership manner, which in turn will help expand our platform. Importantly, as we scale our debt origination capacity and expand newer areas of equity-focused investing, we're creating more consistent and diversified deal activity that feeds into our capital solutions business.
Historically and especially over the last several years, we believe we have been on the cutting edge of strategic dialogue with various financial institutions, we're seeking to extend our rasp a vast array of solutions to these firms in a partnership manner, which in turn will help expand our platform.
James Charles Zelter: Importantly, as we scale, our debt origination capacity and expand newer areas of equity focused investing we're creating more consistent and diversified deal activity that feeds into our capital solutions business.
James Charles Zelter: While quarterly variability and fee revenue should be expected, we're observing that the business is reaching a point of consistency amid continued growth potential. In the first quarter specifically, capital solutions fees were solid, supported by a record quarterly gross capital deployment of nearly $60 billion across the platform. With that, I'll turn it over to Martin for more detail. Thanks, Jim.
James Charles Zelter: While quarterly variability in fee revenue should be expected, we're observing that the business is reaching a point of consistency amid continued growth potential in the first quarter, specifically capital solutions. These were solid supported by record quarterly gross capital deployment of nearly 60 billion across the platform.
James Charles Zelter: With that I'll turn it over to Martin for more detail.
Martin Bernard Kelly: Let me close out with some brief comments on our financial performance. Our first quarter results positioned us well to deliver on the financial targets we've communicated for 2024, which signal an attractive mid-teens earnings growth trajectory. We view the sustainability and predictability of our earnings profile as highly valuable and increasingly appreciated by the market, especially against a backdrop of macroeconomic uncertainty that has impacted more cyclical revenue streams. Starting with the asset management side of the business, FRE trends remain solid with 16% growth year-over-year, reflecting revenue growth of 13% and cost growth of 9%.
Martin Bernard Kelly: Thanks, Jim. Good morning, everyone.
Martin: Thanks, Jim Good morning, everyone. Let me close out with some brief comments on our financial performance.
Martin Bernard Kelly: Our first quarter results positioned us well to deliver on the financial targets, we have communicated for 2024, where signal an attractive mid teens earnings growth trajectory.
Martin Bernard Kelly: We view the sustainability and predictability of our earnings profile is highly valuable and increasingly appreciated by the market, especially against the backdrop of macroeconomic uncertainty that has impacted more cyclical revenue streams.
Martin Bernard Kelly: Starting with the asset management side of the business FRE trends remains solid with 16% growth year over year, reflecting revenue growth of 13% and cost growth of 9%.
Martin Bernard Kelly: As we look towards the remainder of the year, we're on pace to generate the fee-related revenue growth, margin expansion, and overall FRE dollar growth we have indicated. We expect growth in fee revenue to be supported by strong and diversified capital formation, a record $50 billion of dry powder with future management fee potential, and a robust capital solutions outlook that should deliver a strong second and third quarter based on the pipeline we see today. For expenses, we will continue to manage our cost base prudently while selectively investing in key areas, principally global wealth and our credit business. We also expect to recognize a $15 million one-time non-comp expense.
Martin Bernard Kelly: As we look towards the remainder of the year, we're on pace to generate the fee related revenue growth margin expansion and overall FRE dollar growth we have indicated.
Martin Bernard Kelly: We expect growth in fee revenue to be supported by strong and diversified capital formation, a record $50 billion of dry powder with future management fee potential.
Martin Bernard Kelly: And our robust capital solutions outlook that should deliver a strong second and third quarter based on the pipeline we see today.
Martin Bernard Kelly: For expenses, we will continue to manage our cost base prudently, while selectively investing in key areas principally global wealth in our credit business.
Martin Bernard Kelly: We also expect to recognize a $15 million $15 million onetime non comp expense.
Martin Bernard Kelly: Related to the previously announced merger of two closed-end funds with and into MidCap Financial Investment Corp, a publicly traded BDC we manage, which will most likely occur in the second quarter on the closing of these transactions, and which was contemplated in our original expense growth guidance for the year. Altogether, we expect to generate between 15 and 20% FRE growth, as Marc indicated, in line with our growth expectations for a year in which we do not raise a flagship VE fund.
Martin Bernard Kelly: <unk> to the previously announced merger of two closed end funds with and into mid cap financial investment Corp. A publicly traded BDC, we manage which will most likely occur in the second quarter on the closing of these transactions and which was contemplated in our original expense growth guidance for the year.
Martin Bernard Kelly: Altogether, we expect to generate between 15, and 20% FRE growth as Mark indicated inline with our growth expectations for a year in which we do not raise a flagship fund.
Martin Bernard Kelly: Turning to retirement services, we reported SRE of $817 million at a 147 basis point net spread. Adjusting for long-term expectations for alternative returns, the net spread would have been 10 basis points higher in the first quarter, and on a comparable basis, 9 basis points lower than fourth-quarter levels. This sequential decline was driven by two factors.
Martin Bernard Kelly: Turning to our assignment services, we reported FRE of $817 million at a 147 basis point in that spread.
Martin Bernard Kelly: Adjusting for long term expectations for alternative returns.
Martin Bernard Kelly: It would have been 10 basis points higher in the first quarter and on a comparable basis nine basis points lower than fourth quarter levels.
Martin Bernard Kelly: This sequential decline was driven by two factors one higher on the margin cost of new business in the higher interest rate environment together with the delayed deployment into higher yielding assets that mark highlighted.
Martin Bernard Kelly: One, higher margin costs for new business in the higher interest rate environment, together with the delayed deployment into higher yielding assets that Mark highlighted. And two, an approximate five basis point in the quarter spread impact associated with hedging, a portion of Athena's net floating rate position, and higher hedging costs on certain in-force business. As Marc suggested, we reduced the net floating rate portfolio by $9 billion to $16 billion during the first quarter, which resulted in 7% of net invested assets being subject to floating rate indices.
Martin Bernard Kelly: And two an approximate five basis point in quarter spread impact associated with hedging a portion of a things net floating rate position and higher hedging costs on certain enforced business.
Martin Bernard Kelly: As Mark suggested we reduced the net floating rate portfolio by 9 billion to 16 billion during the first quarter.
Martin Bernard Kelly: Which results in 7% of net invested assets being subject to floating rate indices.
Martin Bernard Kelly: As part of this hedging effort, we swapped $8 billion of fixed rate liabilities for floating rate liabilities and issued $4 billion of additional floating rate funding agreements, with the negative carry associated with each recognized as part of our cost of funds in the quarter. We believe that this level of floating rate securities will adequately equip us from a strategic standpoint, while also protecting future earnings power should rates decline materially. Given the smaller portfolio size, our floating rate income sensitivity has commensurately decreased to approximately 30 to 40 million dollars of annual SRE for every 25 basis point move in short-term rates, down from the $45 to $55 million that we previously indicated.
Martin Bernard Kelly: As part of this hedging effort, we swapped $8 billion of fixed rate liabilities to floating and issued $4 billion of additional floating rate funding agreements.
Martin Bernard Kelly: With the negative carry associated with each recognized as part of our cost of funds in the quarter.
Martin Bernard Kelly: We believe that this level of floating rate securities will adequately equip us from a strategic standpoint, while also protecting future earnings power should rates decline materially.
Martin Bernard Kelly: Given the smaller portfolio size, our floating rate income sensitivity as commensurately decreased.
Martin Bernard Kelly: Two approximately $30 million to $40 million of annual salary for every 25 basis point move in short term rates down from the $45 million to $55 million that we previously indicated.
Martin Bernard Kelly: We expect the timing differential between origination and deployment of capital to normalize through net spread in coming quarters. More specifically, there were two large asset transactions that closed towards the end of March, which, had they closed midway through the quarter, would have created a further three basis points of higher net spread in the quarter. Considering key components of Athene's earnings growth outlook versus our fourth quarter call, namely first quarter net spread results, a smaller floating rate portfolio, and fewer expected rate cuts as implied by the forward curve, we continue to expect net spread of approximately 160 to 165 basis points for the full year, which excludes notable items and assumes an 11% annualized alternative return.
Martin Bernard Kelly: We expect the timing differential between origination and deployment of capital to normalize through net spread in coming quarters more.
Martin Bernard Kelly: More specifically there were two large asset transactions that closed towards the end of March which had they closed midway through the quarter would have created a further three basis points of higher net spread in quarter.
Martin Bernard Kelly: Considering key components of a things earnings growth outlook versus our fourth quarter call.
Martin Bernard Kelly: Namely first quarter net spread results smalling, a smaller floating rate portfolio and fewer expected rate cuts as implied by the forward curve. We continue to expect net spread of approximately 160 to 165 basis points for the full year.
Martin Bernard Kelly: Which excludes notable items and assumes an 11% annualized ultra China.
Martin Bernard Kelly: We expect this range of net spread, coupled with robust organic growth, to support low double-digit SRE growth this year versus the comparable 2023 base. In turning to PII, PII has been an expectedly modest contributor to our earnings base in recent quarters as we await a more favorable backdrop to monetize investment. First quarter realized performance phases were also impacted by an impairment on a position held in Fund 9.
Martin Bernard Kelly: We expect this range of net spread coupled with robust organic growth to support low double digit <unk> growth this year.
Martin Bernard Kelly: Versus the comparable 2023 base.
Martin Bernard Kelly: In turning to <unk>.
Martin Bernard Kelly: <unk> has been expectedly modest contribute contributor to our earnings base.
Martin Bernard Kelly: In recent quarters, as we await a more favorable backdrop to monetize investments.
Martin Bernard Kelly: First quarter realized performance fees were also impacted by an impairment on a position held in frontline.
Martin Bernard Kelly: Looking to the second quarter, we currently expect to generate a similar amount of PII as in the first quarter. An important catalyst to reignite realization activity is a reopening of the IPO market, as only around 10% of our fund's total PE portfolio is publicly traded today. We've seen early signs of this happening, and we see a path for an acceleration in PE realizations into 2025 and beyond. Increasing amounts of realized carry would generate additional cash flow to deploy into opportunistic share repurchases, enabling us to execute on our plan to reduce our share count to approximately 600 million shares by the end of 2026.
Martin Bernard Kelly: Looking to the second quarter, we currently expect to generate a similar amount as the first quarter.
Martin Bernard Kelly: An important catalyst to reignite relies a realization activity is a reopening of the IPO market is only around 10% of our funds total portfolio is publicly traded today.
Martin Bernard Kelly: We've seen early signs of this happening and see a path for an acceleration in PE realizations into 2025 and beyond.
Martin Bernard Kelly: Increasing amounts of realized carry would generate additional cash flow to deploy into opportunistic share repurchases, enabling us to execute on our plan to reduce our share count to approximately 600 million shares by the end of 2026.
Martin Bernard Kelly: Finally, on taxes, after a large non-recurring benefit in the prior quarter, which reduced the 2023 annual rate, we experienced a 17% effective tax rate in the first quarter. For the full year, we expect our tax rate to approximate 20%, consistent with our long-term guidance, with a rate slightly above 20% expected in the second quarter. In closing, we are generating significant momentum as we continue executing on our business plan, which is setting the stage for our next phase of growth. The earnings power of the business has tremendous potential, and we look forward to delivering on the opportunity in front of us. And with that, I'll turn the call back to the operator for Q&A.
Martin Bernard Kelly: Finally on taxes after a large nonrecurring benefit in the prior quarter, which reduced the 2023 annual rate, we experienced a 17% effective tax rate in the first quarter.
Martin Bernard Kelly: For the full year, we expect our tax rate to approximate 20% consistent with our long term guidance with a rate slightly above 20% expected in the second quarter.
Martin Bernard Kelly: In closing we are generating significant momentum as we continue executing on our business plan, which is setting the stage for our next phase of growth.
Martin Bernard Kelly: Earnings power of the business has tremendous potential and we look forward to delivering on the opportunity in front of us.
Speaker Change: And with that I'll turn the call back to the operator for Q&A.
Operator: Thank you. The floor is now open for questions. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is queued. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. Again, that's star number one to register a question at this time. Today's first question is coming from Glenn Schorr of Evercore. Please go ahead.
Speaker Change: Thank you the floor is now open for questions. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line.
Operator: You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up the handset before pressing the star Keys again Thats Star One to register a question at this time today's first question is coming from Glenn Schorr.
Glenn Paul Schorr: Of Evercore. Please go ahead.
Glenn Paul Schorr: Hi, thanks very much. I like hearing about all the progress in the Wealth Channel. My question is, in the asset management segment, non-comp was higher. One of the things you noted in the footnote was higher placement fees. So, good expenses. I'm just curious, obviously that's included in your 15-20% FRE thoughts for the year, but I've been hearing some talk about moving, some of the distributors want to move from placement fees to something smoother of a revenue share, and I'm curious if that's in motion and if that's part of your thought process within your FREX. I'd say a couple of things, Glenn.
Glenn Paul Schorr: Hi, Thanks very much.
Glenn Paul Schorr: So I like hearing about all the progress in the wealth channel.
Glenn Paul Schorr: My question is in the asset management segment.
Glenn Paul Schorr: Non comp was higher one of the things you noted in the footnote was higher placement fees. So good expenses.
Glenn Paul Schorr: So I'm just curious obviously thats included in your 15% to 20% FRE thoughts for the year, but but I've been hearing some talk about.
Glenn Paul Schorr: Moving some of the distributors wanted to move from placement fees to something smoother revenue share and I'm curious if that's in motion and if that's part of your thought process within your your FRE expectations. Thanks.
Martin Bernard Kelly: I'd say a couple of things. Glenn, it's Martin.
Glenn Paul Schorr: I'd say I could tell you a couple of things Glenn It's Martin Firstly, we are.
Martin Bernard Kelly: Firstly, we are... We're at the back end of the financial impact of decisions we've made to reset our cost base, both comp and non-comp. And so you should expect Q1, which was a step up from Q4, represents normal going forward, and that's all consistent with the guidance for the year, which is 100 basis points of margin expansion, 24 over 23.
Martin: We're at the back end of <unk>.
Martin Bernard Kelly: The financial impact of decisions, we've made to reset.
Martin Bernard Kelly: Our cost base.
Martin Bernard Kelly: Both comp and non comp and so you should expect.
Martin Bernard Kelly: The Q1, which was a step up from Q4 represents normal going forward.
Martin Bernard Kelly: And.
Martin Bernard Kelly: And so that's all consistent with the with the guidance for the year, which is which is a 100 basis points of margin expansion 24 of the 23.
Martin Bernard Kelly: In terms of the specifics around the question, there are actually a variety of different ways that we distribute products; some involve an upfront placement fee, which is typically expanse and in the numbers, others involve a trailer fee against revenues, and so it's actually a mix depending on distributor and product. And so there's no real change. It's just there are different constructs that are appropriate for different products, and we have products that distribute, you know, using each of these, each of these, this sort of trailer or cost structure.
Martin Bernard Kelly: In terms of the specifics around the question there are actually a variety of different ways that we distribute products. Some involve an upfront placement fee.
Martin Bernard Kelly: Which is typically expense and in the numbers.
Martin Bernard Kelly: Others involve a trade, let's say against revenues.
Martin Bernard Kelly: And so it's a mix actually depending on distributor and products.
Martin Bernard Kelly: And so.
Martin Bernard Kelly: There is a real change its just.
Martin Bernard Kelly: There's different.
Martin Bernard Kelly: Constructs that are appropriate for different products and we have we have products are distributed using each of these.
Martin Bernard Kelly: Each of these sort of trailer or cost structures.
Operator: Thank you. The next question is coming from Alex Blostein of Goldman Sachs. Please go ahead. Good morning. I was hoping we could start maybe with
Alexander Blostein: Thank you. The next question is coming from Alex Blostein of Goldman Sachs. Please go ahead. Thanks.
Martin Bernard Kelly: Thank you. The next question is coming from Alex Blaustein of Goldman Sachs. Please go ahead.
James Charles Zelter: Thanks, Alex. You know, I think Marc and Martin will hit it.
Alexander Blostein: Thanks, Good morning, I was hoping we could start maybe with your outlook for third Party fund raising.
Alexander Blostein: We're obviously off to a really good start here in the first quarter. So maybe update us on what youre expecting for the rest of the year with respect to third party fundraising what are some of the key drivers behind that and as you sort of think about some of these larger insurance companies coming in into your offering how should we be thinking about the fee rate, particularly within the yield bucket on a blended basis going forward.
James Charles Zelter: Thanks.
James Charles Zelter: Like, we think the first quarter sets the level for great trend growth throughout the year. We're very comfortable that what we've seen in terms of the last 24 months, bringing the products together, being very thoughtful about our product suite, really delivering a holistic package. So we're very comfortable taking the first quarter and looking at that as the year grows out. So, you know, in our mind, the numbers we've put forth in terms of, you know, a full year target of $50 billion, we still feel very comfortable with that. And the traction across all of our channels would, you know, give us great comfort.
Speaker Change: Thanks, Alex.
James Charles Zelter: I think mark Mark and Martin hit it like we think the first quarter, it's still level for great trend growth throughout the year.
James Charles Zelter: We're very comfortable that what we've seen in terms of the last 24 months, bringing the products together being very thoughtful about our product suite.
James Charles Zelter: Really delivering a holistic package. So we're very comfortable taking the first quarter and looking at that as the year grows out so.
James Charles Zelter: In our mind.
James Charles Zelter: The numbers, we put forth.
James Charles Zelter: In terms of full year target of the $50 billion.
James Charles Zelter: Feel very feel very comfortable with that.
James Charles Zelter: And the traction across all of our channels would you know.
Speaker Change: Can you give us a great comfort certainly a lot of the conversations are going on around the yield businesses.
James Charles Zelter: Certainly, a lot of the conversations are going on around the yield businesses, and whether it's what we're doing in direct origination, the pioneer goals, or asset-based finance. Marc alluded to the insurance company in terms of the ecosystem and the broad breadth there. So, you know, in our simple summary, we love the trend, and we're hitting on all cylinders, and it's across products, but certainly, Yield is the primary, but we also have solid fundraising across a variety of our hybrids, whether it's the Accord Plus, whether it's HVF later in the year, or in our equity businesses, AAA and infrastructure, and such.
James Charles Zelter: And whether it's what we're doing in direct origination.
James Charles Zelter: The pioneer moves, we're making in asset based finance Mark alluded to the insurance company in terms of the ecosystem and the broad breadth there so.
James Charles Zelter: In our in our simple summary, we love the trend and we're hitting on all cylinders and it's across products, but certainly.
James Charles Zelter: Yield.
James Charles Zelter: As the primary but we also have.
James Charles Zelter: Solid fund raising in a variety of our hybrid whether it's via cord plus whether it's HVAC later in the year or in our equity businesses, AAA and infrastructure and such so feel very comfortable with the trend and feel very comfortable with the themes that we're seeing are strong and I think there is in the industry.
James Charles Zelter: So feel very comfortable with the trend, feel very comfortable. The themes that we're seeing are strong, and I think there's this in the industry and cooperation across a variety of like-minded, positioned investors in the insurance industry as well as in the banking business, which we can talk about. Fees, we're not seeing fee compression. People want the product. They see it's interesting. If you look where the high-yield indexes are this morning as we have this call, basically, you know, if you look where those levels are today, they're extremely tight.
James Charles Zelter: Mark alluded to it but just as much.
James Charles Zelter: Much much greater.
James Charles Zelter: Cooperation across a variety of like minded positioned investors and the insurance industry as well as in the banking business, which we can talk about fees were not seeing fee compression people want product. They see it's interesting you look where the the high yield indexes are this morning.
James Charles Zelter: As we have this call basically if you look where those levels are today. They are extremely tight and if you look at where high yield is right now it's basically $3 50 over and for you to make these investment grade investments for these insurance portfolios $2 5300 over it is incredibly attractive so we.
James Charles Zelter: If you look at where high-yield is right now, it's basically 350 over. And for you to make these investment-grade investments for these insurance portfolios, you know, 250, 300 over, it's incredibly attractive. So we don't see fee pressure.
James Charles Zelter: Don't see fee pressure, we see frontline growth and we're comfortable with the pipeline.
Operator: We see trendline growth, and we're comfortable with the pipeline. Thank you. The next question is coming from Brennan Hawken of UBS. Please go ahead. Morning, thanks for taking my question. Um, I'd love to
Brennan Hawken: Thank you. The next question is coming from Brennan Hawken of UBS. Please go ahead. Good morning.
James Charles Zelter: Thank you. The next question is coming from Brennan Hawken of UBS. Please go ahead.
Brennan Hawken: Good morning, Thanks for taking my questions.
Brennan Hawken: I'd love to hear updated outlook on capital solutions really strong revenue momentum there building on last year's strengths. So were there any particular platforms that were notable contributors and given the building momentum behind capital markets activity why shouldn't we see those revenues continued to show robust growth.
James Charles Zelter: Well, this is Jim again. I think that there are a number of questions there. We do get excited about our capital solutions because it ties into not only the distribution of great ideas, and as Marc said, 25% of everything and 100% of nothing, but it increases the dialogue that we have in our capital formation. Investors see the product that they're seeing from us, and it opens the door to getting closer. And again, so we're seeing momentum.
Brennan Hawken: Well I know this is Jim again, I think that there is a number of questions. We do get excited about our capital solutions because it ties into not only distribution of great ideas and as Mark said, 25% of everything and are 100% of nothing but it increases the dialogue that we have in our cash.
James Charles Zelter: <unk> formation.
James Charles Zelter: Investors see the product that they're seeing from us.
James Charles Zelter: And it opens the door to get closer and again, so we're seeing momentum I think taking a broad step back.
James Charles Zelter: I think taking a broad step back, some of the themes that Marc talked about, whether it's not only the transition from equity that's private versus private equity, a variety of these asset-based solutions like seller financing and from UBS, these are all trends that we believe are going to continue to expand on the existing business. And then when you think about what's going on domestically with large companies, whether it's the Infrastructure Act, the CHIPS Act, what's going on in EV, there are many, many investment-grade companies that are going to be confronted with massive growth initiatives, and it's not obvious that they should do it through the traditional channels of investment-grade public debt or equity.
James Charles Zelter: Some of the themes that mark talked about whether it's not only is the <unk>.
James Charles Zelter: Transition from equity that's private versus private equity a variety of these asset based solutions like the solar financing from UBS.
James Charles Zelter: These are all trends that we believe are going to continue to expand on the existing business and then when you think about what's going on domestically with large whether it's the infrastructure at the chips Act what's going on in E. V. There are many many investment grade.
James Charles Zelter: Companies that aren't going to be confronted with massive.
James Charles Zelter: Growth initiatives and it's not obvious that they should do it through the traditional channels of investment grade public debt or equity and we're just finding ourselves at the intersection of those conversations certainly you've seen what's happened in the past several months with what we do for air, France, and <unk> and many other companies but.
James Charles Zelter: And we're just finding ourselves at the intersection of those conversations. Certainly, you've seen what happened in the past several months with what we did for Air France and Bonobi and many other companies. But again, our model is based on making sure that we are an investor first, but this ACS, the flywheel of origination, distribution, getting closer to your clients, and then finding new avenues from which companies will fund and finance. That flywheel is working. And so while we do expect growth, we want to do it in a very measured manner.
James Charles Zelter: Again, our model is based on making sure that we are an investor reversed, but this acs the flywheel of origination distribution getting closer to your clients and then finding new avenues from which companies will fund and finance that flywheel flywheel flywheel is working and so while we do.
James Charles Zelter: Growth, we wanted to do it in a very measured manner.
Operator: Thank you. The next question is coming from Bill Katz of TD Cowen. Please go ahead.
James Charles Zelter: Thank you. The next question is coming from Bill Katz of Cowen. Please go ahead.
William Raymond Katz: Thank you very much for taking the question. I look forward to seeing everybody in October, if not sooner.
William Raymond Katz: Okay. Thank you very much for taking the question look forward to seeing everybody in October if not sooner.
Marc Jeffrey Rowan: So Marc, not to steal any thunder from a couple of months from now, but when you laid out your goals for the 15-20% FRE growth and the low double-digit growth for SRE, your flywheel that Jim was just talking about was substantially smaller. How do we triangulate between the sort of the rapid growth of your ecosystem and the financials in terms of thinking through earnings growth? It seems to me that you should be able to support either or both faster asset management growth and higher ROE in the insurance business. Or is there an elevated expense offset to some of that flywheel acceleration?
William Raymond Katz: To me.
Marc Jeffrey Rowan: Mark not to steal any thunder from a couple of months from now, but when you laid out your goals for the sort of 15% <unk> growth in the low double digit growth for sorry. Your flywheel that Jim was just talking about was substantially smaller how do we triangulate between the sort of the rapid.
Operator: Thank you.
Operator: Growth of your ecosystem to the financials in terms of thinking through the earnings growth it.
Operator: It would seem to me that you should be able to support either or both faster asset management growth and or a higher ROE in the insurance business or is there an elevated expense offset to some of that flywheel acceleration. Thank you.
Marc Jeffrey Rowan: I don't, thanks for the question. I don't think any of the above. I want to come back to, and you know, I guess.
Speaker Change: I don't.
Speaker Change: Thanks for the question I don't think any of the above.
Speaker Change: I wanted to come back to.
Speaker Change: I guess maybe.
Marc Jeffrey Rowan: Maybe it'd be a little bit of an outlook for the industry. Our industry has amazing potential. The case for private markets is a very compelling case. People used to look to private markets for excess return; now they look to private markets for both excess return and diversification. I saw a note the other day from our chief economist, saying that better than 80% of employment in the U.S. is in private markets. We think about the S&P 500.
Marc Jeffrey Rowan: Maybe ABS a little bit of an outlook for the industry. Our industry has amazing potential the case for private markets.
Marc Jeffrey Rowan: Is a very compelling case.
Marc Jeffrey Rowan: We used to look to private markets for excess return now they look to access private markets for both excess return and diversification.
Marc Jeffrey Rowan: I saw a note the other day from our chief economist better than 80% of employment in the U S as in private markets.
Marc Jeffrey Rowan: We think about public markets. We spend so much time talking about them. But investors are increasingly now recognizing that they have exposure to a very small sliver of the economy through the S&P 500. They're all, my joke is, they're all levered to NVIDIA, Apple, and Amazon. So I expect there to be very robust growth in private markets. All right.
Marc Jeffrey Rowan: We think about S&P 500, we think about public markets. We spend so much time talking about them, but investors increasingly are now recognizing that they have exposure to a very small sliver of the economy through S&P 500.
Marc Jeffrey Rowan: My joke is they are all leveraged in the video Apple and Amazon.
Marc Jeffrey Rowan: So I expect there to be very robust growth in private markets.
Marc Jeffrey Rowan: The lockdown. We as an industry have to be very careful to stick to our promise of excess return per unit of risk. That is why investors pay us premium fees. That is why they trust us. This is how they navigate private markets with firms they trust. We are limited, and I believe we will all in the industry discover we are not going to be limited by capital flows. But the taking of capital, because you can take it, and then investing it poorly is a quick way to destroy a business. I think we've seen lots of examples of that and the beginnings of those seats being set.
Speaker Change: All good.
Marc Jeffrey Rowan: The lockdown.
Marc Jeffrey Rowan: We as an industry have to be very careful to stick to our promise of excess return per unit of risk that is why investors pay us premium fees that is why they trust us this is how they navigate.
Marc Jeffrey Rowan: <unk> markets with firms they trust.
Marc Jeffrey Rowan: We are limited and I believe we will all in the industry discover we are not going to be limited by capital flows.
Marc Jeffrey Rowan: But the taking of capital because you can take it.
Marc Jeffrey Rowan: And then investing it poorly is a quick way to destroy a business.
Marc Jeffrey Rowan: I think we've seen lots of examples of that and the beginnings of those seats being set we are very focused on growing our business in the context of excess return per unit of risk, which is limited in my opinion by origination.
Marc Jeffrey Rowan: We are very focused on growing our business in the context of excess return per unit of risk, which is limited, in my opinion, by origination and BiCulture. We are the balance between those two. And so while, Well, I'll say it differently.
Marc Jeffrey Rowan: And by culture.
Marc Jeffrey Rowan: We are the balance balancing those two things.
Marc Jeffrey Rowan: So wow.
Marc Jeffrey Rowan: I like the position we're in. To be a $670 billion asset manager sounds like a big number, but the reality is, in the scheme of the markets we serve, we're tiny.
Marc Jeffrey Rowan: I'll say it differently I like the position we're in to be a 670 billion asset manager.
Marc Jeffrey Rowan: Sounds like a big number.
Marc Jeffrey Rowan: But the reality is in the scheme of the markets we serve.
Marc Jeffrey Rowan: We are minimal.
Marc Jeffrey Rowan: The notion of doubling our business over the next five years doesn't seem all that daunting. The things we need to do, origination. Culture, and education because building something that's not sustainable is not what we're interested in doing. Sustainable, predictable. 15 to 20% long term in the asset management business, and low double digits in SRE. If we get periods of market volatility where things are really mispriced, and we can put large amounts of capital to work, as we've seen at least once a decade, if not twice a decade over the past few decades, you will see those accelerate. Origination, origination, origination for us.
Marc Jeffrey Rowan: <unk> of doubling our business over the next five years.
Marc Jeffrey Rowan: Doesn't seem all that daunting.
Marc Jeffrey Rowan: The things we need to do origination.
Marc Jeffrey Rowan: Culture.
Marc Jeffrey Rowan: Education, because to build something that's not sustainable is not what we're interested in doing.
Marc Jeffrey Rowan: Sustainable predictable.
Marc Jeffrey Rowan: 15% to 20% long term in the asset management business.
Marc Jeffrey Rowan: Low double digits and sorry, if we get periods of market volatility where things are really mispriced and we can put large amounts of capital to work as historically, we've seen at least once a decade, if not twice a decade over the past few decades, you will see those accelerate.
Marc Jeffrey Rowan: Origination origination origination for us.
Marc Jeffrey Rowan: Okay.
Operator: Thank you. The next question is coming from Ben Budish of Barclays. Please go ahead.
Marc Jeffrey Rowan: Thank you. The next question is coming from Ben <unk> of Barclays. Please go ahead.
Benjamin Elliot Budish: Hi. Good morning, and thanks for taking the question.
Benjamin Elliot Budish: Hi, good morning, and thanks for taking the question I wanted to ask about some of the nuances on the retirement services flows it looks like Youre fabienne issuance was a bit better than what we would've expected from we saw publicly the PRT side was a little bit lower.
Marc Jeffrey Rowan: I wanted to ask about some of the nuances on the retirement services flows. It looks like your FABN issuance was a bit better than what we would have expected from what we saw publicly. The PRT side was a little bit lower.
Marc Jeffrey Rowan: Just any nuances there? And on the PRT side, in particular, any concerns related to some of the shareholder lawsuits that have materialized in the last several months? Do you think that sort of increases the concern that a company might give some pause before engaging in a transaction with Athene? Or do you feel like this is something that will blow over and Athene will shake out just fine?
Marc Jeffrey Rowan: Just any nuances there and on the PRT side in particular any concerns related to some of the.
Marc Jeffrey Rowan: The shareholder lawsuits that have.
Marc Jeffrey Rowan: Materialized in the last several months do you think that sort of increases the concern that a corporate might give some pause before engaging in a transaction with athene or do you feel like this is something that will blow over and I think will shake out just fine. Thank you.
Operator: Thank you.
Mark: Thanks, Dan it's Mark.
Operator: The business is a two sided business and I've said this a lot.
Operator: And.
Operator: We hope we've been the only ones disclosing that so it's been difficult I believe for analysts to really understand it our business is about creating spread.
Operator: If we don't have widespread we're not interested in doing business. We have better uses for the capital and so we have built and Jim has spent a lot of time talking about the asset pipeline.
Operator: <unk> investment grade excess spread on the asset side I'll focus now on the liability side and get to your question. We have built over the past 15 years four different channels in which we can originate.
Operator: In various periods of time some of those channels are really attractive and some of them are not that attractive.
Operator: Last year, F&B and was not all that attractive.
Operator: This year <unk> is very attractive.
Operator: Reinsurance, particularly international reinsurance in.
Operator: From Japan really attractive business.
Operator: A really attractive business in PRT PRT was one of the most attractive segments of business last year.
Operator: This year.
Operator: Prior to any lawsuits.
Operator: We saw cost of funds associated with PRT.
Operator: At levels that reduced spreads in places, where we just didn't think the business was all that attractive.
Operator: A win is only a win if you have widespread.
Operator: The lawsuit is actually going to in my opinion chill PRT volume across the industry.
Operator: So there's not an athene specific issue Athene is the strongest of the companies in the industry with the most capital and other things. There are there are and have been other lawsuits relating to this anytime you have noise.
Operator: However.
Operator: Undeserved or poorly drafted it needs to be disposed of at first I think we will see a decline in expected PRT volume this year.
Speaker Change: Sure Thats, a bad thing from our point of view given that at the moment spreads in PRT are not all that attractive.
Operator: I encourage all of you.
Operator: To look not so much at flow, but to look at cost of funds and spread cost of funds is a very tricky measure.
Operator: There are lots of ways management teams across industries.
Operator: Have been surprised by the cost of various options and features that they have built into their products.
Operator: For us we have built this business in partnership with <unk> and grant and the team from.
Operator: From the very get go.
Operator: As owners for owners, it's our equity we.
Operator: We want high spread business. Thank you.
Marc Jeffrey Rowan: And so we have built, and Jim has spent a lot of time talking about the asset pipeline, private investment grade, and excess spread on the asset side. I'll focus now on the liability side and get to your question. We have built, over the past 15 years, four different channels in which we can. At various periods of time, some of those channels are really attractive, and some of them are not that attractive. Last year, FABM was not all that attractive. This year, FABN is very attractive; reinsurance, particularly international reinsurance from Japan, is really attractive business. FIA is really attractive, too. In PRT, PRT was one of the most attractive segments of business last year and this year.
Marc Jeffrey Rowan: Thanks, Bennett. It's Marc.
Operator: Thank you. The next question is coming from Patrick Davitt of Autonomous Research. Please go ahead.
Marc Jeffrey Rowan: Prior to any lawsuit, we saw the cost of funds associated with PRT at levels that reduced spread to places where we just didn't think the business was all that attractive. A win is only a win if you have widespread; here, the lawsuit is actually going to, in my opinion, chill PRT volume across the board. This is not an Athene-specific issue, but Athene is the strongest of the companies in the industry with the most capital and other things. There are and have been other lawsuits relating to this. Whenever you have noise,
Marc Jeffrey Rowan: However undeserved or poorly drafted, it needs to be disposed of first. I think we will see a decline in expected PRT volume this year. I'm not sure that's a bad thing from our point of view, given that, at the moment, spreads in PRT are not all that attractive. I encourage all of you to look not so much at flow but to look at cost of funds and spread. The cost of funds is a very tricky measure.
Marc Jeffrey Rowan: There are lots of ways management teams across industries have been surprised by the cost of various options and features that they have built into their products. For us, we have built this business in partnership with John Cimbalardi and Grant and the team from the very get-go. As owners, for owners, it's our equity. We want a high-spread business.
Marc Jeffrey Rowan: The business is a two-sided business, and I've said this a lot. It's we've been the only ones disclosing this, so it's been difficult, I believe, for analysts to really understand it. Our business is about creating spread. If we don't have spread, we're not interested in doing business. We have better uses for the capital.
Marc Jeffrey Rowan: Hey, good morning, everyone.
Marc Jeffrey Rowan: Questions on the Atlas mass mutual partnership.
Speaker Change: Firstly any any framework you can give on how to think about the impact on Atlas as origination volumes in the so Paulo earnings and then secondly, the press release suggested there was also some sort of separate.
Marc Jeffrey Rowan: Low or management agreement with your ABF business.
Marc Jeffrey Rowan: Is that a fair read and how should we think about that that secondary agreement as well. Thanks.
Operator: The next question is coming from Patrick Davitt of Autonomous Research. Please go ahead. Hey, good morning, everyone. My question is about the Atlas MassMutual Pars.
Marc Jeffrey Rowan: So first I've said this publicly and it's actually kind of an interesting.
Patrick Davitt: Observation for how this goes I think when I think I'll ask often who our best competitors are adding massmutual is our best competitor I look at what they do on the asset side I look at there on the liability side the quality of the team that does not in any way mean that we should not be partners with them.
Patrick Davitt: We want and we continue to deliver this message and it is resonating we want 25% of everything in 100% of nothing they are a like minded high quality financial institution, who sees the same opportunity that we see an increasingly what the rest of the industry is seeing there just among the first movers as to the specifics.
Patrick Davitt: Alice I'll, let Jim delve, a little bit and I know, there's a lot of enthusiasm about Atlas.
Patrick Davitt: Yes, I think continuing to taking into wide scope and then drilling down.
Patrick Davitt: Atlas for us in this conversation about what private credit is.
Patrick Davitt: Historically been defined versus when it really has defined the 40 trillion.
Patrick Davitt: Outlets is really that platform of our 16, we've got six or seven that really drive the activity and what youre seeing in the recent announcements about Atlas is it is a finance lender to finance companies and therefore, the breadth and scale of equity and debt financings.
Patrick Davitt: Be a coal attracts and needs to have as well as sma's partnership's offtake facilities.
Patrick Davitt: That's what we call the Atlas ecosystem and it will continue to grow we've been very successful since we closed it.
Patrick Davitt: Its fully ramped it's fully funded.
Patrick Davitt: Have other folks that you'll hear about becoming into us, but it's that flow that lets us have the ABF institutional fund. It allows us to have ABC, which is the vehicle that I mentioned and I really wanted to differentiate because I heard a lot of these calls last couple of days talking about SRT. This is just making sure that we.
Patrick Davitt: We control the origination on a systematic structural long term basis, not a one off SRT tray, which is interesting and bespoke, but those are interesting tactical trades, we wake up every day, saying how can we when mark talks about getting the.
Patrick Davitt: Alrighty and focusing on spread how can we ensure that we have as large a pool of long term assets, beating that those liabilities offsetting those liabilities and Atlas is just one of the big pieces and when we think about that it's much more dramatic.
Patrick Davitt: In a quarter to quarter activity and SRT trade, which is one of the 40 tools. We're very involved in that sector. We've been doing it since one nine some of the more recent transactions are a little bit blind portable exceedingly strong lever, but they are strong IGN assets, but again I would.
Patrick Davitt: No those are things that you source from others, whereas Atlas allows us to source directly.
Operator: So.
Patrick Davitt: The mass mutual dialogue and relationship is holistic it's across the ecosystem and we suspect that will be the.
Patrick Davitt: The template for which many many others join us.
Patrick Davitt: Thank you. The next question is coming from Patrick Davitt of Autonomous Research. Please go ahead.
Operator: We want, and we continue to deliver this message, and it is responding. We want 25% of everything and a hundred percent of nothing. They are a like-minded, high-quality financial institution that sees the same opportunity that we see and increasingly what the rest of the industry is seeing. They're just among the first movers. As to the specifics for Atlas, I'll let Jim delve into them a little bit. And I know there's a lot of enthusiasm about Atlas. Yeah,
Patrick Davitt: Thank you. The next question is coming from Michael Cyprus with Morgan Stanley. Please go ahead.
Marc Jeffrey Rowan: Yeah, I think, you know, continuing to take the wide scope and then drilling down, I mean, Atlas is for us in this conversation about what private credit is. [inaudible] And therefore, the breadth and scale of equity and debt financing that that vehicle attracts and needs to have, as well as SMAs, partnerships, offtake facilities, That's what we call the Atlas ecosystem, and it will continue to grow. We've been very successful since we closed it. It's fully ramped.
Operator: So, first, I've said this publicly, and it's actually kind of an interesting observation for how this goes. I think when I think I often ask who our best competitors are, I think MassMutual is our best competitor. I look at what they do on the asset side; I look at their on the liability side, and the quality of the team. That does not, in any way, mean that we should not be partners with them.
Speaker Change: Hey, good morning, Thanks for taking my question I wanted to circle back to the new Apollo asset that company ABC that you guys are launching was hoping you could elaborate a bit on the product. The return profile interesting you're structuring as an operating company and hoping you could elaborate a bit around that maybe just talk about your vision and how big could this be over time. Thank you.
James Charles Zelter: It's fully funded. We will have other folks that you'll hear about coming into us, but it's that flow that lets us have the ABF Institutional Fund. It allows us to have ABC, which is the vehicle that I mentioned. And I really want to differentiate because I heard a lot of these calls the last couple of days talking about SRT. This is just making sure that we control the origination on a systematic Structural Long-Term Baseline, not a one-off SRT trade, which is interesting and bespoke, but those are interesting tactical trades.
Operator: Well really Mike when we think about the activities in terms of.
James Charles Zelter: We wake up every day saying, how can we, when Marc talks about getting the liability and focusing on spread, how can we ensure that we have as large a pool of long-term assets feeding those liabilities, offsetting those liabilities? And Atlas is just one of the big, big pieces.
James Charles Zelter: Consumer finance hard assets.
James Charles Zelter: And when we think about that, it's much more dramatic than the quarter-to-quarter activity in an SRT trade, which is one of the 40 tools. We're very involved in that sector. We've been doing it since 2009. Some of the more recent transactions are a little bit blind pool, exceedingly strongly levered, but they are strong IG assets. But again, I would note, those are things that you source from others, whereas Atlas allows us to source directly.
James Charles Zelter: The broad areas of asset based finance. This is the vehicle that lets us we have the institutional product.
James Charles Zelter: So the mass mutual dialogue and relationship is holistic. It's across the ecosystem, and we suspect that will be the template for which many, many others join us. Thank you. The next question is coming from Michael Cyprys of Morgan Stanley. Please go ahead. Hey, good morning. Thanks for taking the call.
Michael J. Cyprys: <unk>, which we've raised some nice money and we will continue to be one of our flagship.
Operator: Thank you. The next question is coming from Michael Cyprys of Morgan Stanley. Please go ahead.
Michael J. Cyprys: Pillars in the yield and credit infrastructure and this was created to really give the global wealth channels.
James Charles Zelter: Well, really, Mike, when we think about the activities in terms of, you know, consumer finance, hard assets, the broad areas of asset-based finance, this is the vehicle that allows us to, you know, we have the institutional product, ABF, which we've raised some nice money on and will continue to be one of our flagship pillars in the yield and credit infrastructure. And this was created to really give the global wealth channels a, as investors have really grasped on to private credit, they realize they have a concentration issue in sponsor buyout activity. Now, that's just a recognition that there is a desire for diversification. So this will really be the first mover product set.
James Charles Zelter: A.
James Charles Zelter: As investors have had really grasp onto private credit.
James Charles Zelter: Realize they have a concentration issue in sponsored buyout activity now that's just a recognition that there's a desire for diversification. So this will really be the first mover.
James Charles Zelter: You will see this is a majority of investment-grade risk, a majority of debt risk, but it does have some non-investment-grade debt exposure and some residual and equity exposures. But we are trying to have this be like ADS, our flagship product that operates in the highest quality growth in the sector and really is trying to get high single-digit, low double-digit returns, but doing so in a very comprehensive manner by not using leverage but really using the sourcing of the product. So it will be our flagship product in asset-based lending as ADS is our flagship product in corporate credit. Yeah, I'm going to just punctuate this a little bit.
James Charles Zelter: Product set you will see this as a majority of investment grade risk a majority of that risk, but yet it does have some non investment grade debt exposure and some residual and equity exposures, but we are trying to have this be like avs, our flagship product that operates in the highest.
James Charles Zelter: So quality growth of the sector and really is trying to get high single digits low double digit returns, but doing so in a very comprehensive manner by not using leverage but being you really using the sourcing of the product. So it will be our flagship product and asset base is ABS is our flagship product.
James Charles Zelter: Yeah, I'm going to just punctuate this a little bit, especially, you know, given the environment we're in and the concerns over credit quality. We've been in this business a long time. For me, this is, for Jim and I, this is our 40th year.
James Charles Zelter: And corporate credit.
James Charles Zelter: I'm going to just punctuate this a little bit, especially given the environment, we're in and the concerns over credit quality.
James Charles Zelter: We've been in this business a long time for me this is for.
Speaker Change: Jim Andi is our 40th here so it's hard to believe that sometimes.
Marc Jeffrey Rowan: It's hard to believe that sometimes, and I'll just take ADS as an example. We don't run ADS at 100% first lien. And we run ADS, I believe, with the lowest leverage in the industry. Could we produce a higher rate of return? A higher dividend, of course we could.
James Charles Zelter: So let's take <unk> as an example, we don't we run at.
Marc Jeffrey Rowan: At 100% first lien.
Marc Jeffrey Rowan: And we run Avs I believe with the lowest leverage in the industry.
Marc Jeffrey Rowan: Could we produce higher rate of return.
Marc Jeffrey Rowan: But we know that particularly as we're introducing an entire marketplace, institutional and retail, to the notion of private markets, that they should experience the same way, this the way that the smartest institutions in the world have experienced it, and not have returns artificially manufactured through leverage or otherwise. The time to be levered is when assets are really cheap, and they're plentiful and available. The time not to be leveraged is when markets are tight, and there's lots of liquidity.
Marc Jeffrey Rowan: Higher dividend of course, we could but we know that particularly as we're introducing an entire marketplace institutional and retail to the notion of private markets that they should experience. The same way. This is the same way that the smartest institutions in the world have experienced it.
Marc Jeffrey Rowan: And not have returns artificially manufactured through leverage or otherwise.
Marc Jeffrey Rowan: The time to be Levered.
Marc Jeffrey Rowan: Asset, so really cheap and they are plentiful and available the time not to be levered.
Marc Jeffrey Rowan: As when markets are tight and there's lots of liquidity.
Marc Jeffrey Rowan: It's easy to be seduced into wanting to produce high returns. But we've always been focused on trying to produce acceptable returns, excess return per unit of risk. And the same philosophy that we run ADS and the team runs ADS by is how we're going to produce this in asset-backed to make sure this category, which should be as large as corporate over time, is introduced to investors in the best possible way, going first, and telling the story is exactly what we want to do.
Marc Jeffrey Rowan: It's easy to be seduced into wanting to produce high returns we've always been focused on trying to produce acceptable returns.
Marc Jeffrey Rowan: Excess return per unit of risk and the same philosophy that we run and the team runs avs pie is how we're going to produce this in asset backed to make sure this category, which should be as large as corporate overtime.
Marc Jeffrey Rowan: Is introduced to investors in the best possible way and going first and telling the story is exactly what we want to do.
Operator: Thank you. The next question is coming from Kenneth Worthington of JPMorgan Chase. Please go ahead.
Speaker Change: Thank you. The next question is coming from Ken Kenneth Worthington of Jpmorgan Chase. Please go ahead.
Alex Bernstein: Hi, this is Alex Bernstein on behalf of Ken. Thanks for taking our question. I know there was a question previously around Atlas and the new relationship. So apologies if any of this is repetitive. But I do think there are a couple other points we're hoping to draw out. Firstly, do you see this type of arrangement accelerating your ability to reach the 200 to 250 billion long-term origination target that you communicated previously?
Operator: Hi, This is Alex Bernstein on for Ken. Thanks for taking my question I know it was really a question previously around Atlas in the massive new relationships. So apologies if any of this is repetitive, but I do think there are a couple of other points, we're hoping to drought.
Alex Bernstein: Firstly do you see this type of arrangement accelerating your ability to reach the 200 to 250 billion long term origination target that you've communicated previously.
Alex Bernstein: And secondly, how are you managing these platforms as a portfolio to reach your goals? And how are you thinking about the mix of outside capital, Apollo Capital, and bolt-ons that best help you reach your growth goals? And those are the topics. Thank you.
Alex Bernstein: And then secondly, how are you managing these platforms as a portfolio to reach your goals and how are you thinking about the mix of outside capital Apollo capital bolt ons that best help you reach your growth goals and those of Athene. Thank you.
James Charles Zelter: Well, thanks for the question. You know, this will be a great conversation topic on our October day, but basically, you know, we have these 16 platforms. The top five to seven, you know, namely MidCap, Atlas, PK, and Wheels, are the great drivers. And yes, as we think about running those as a portfolio, optimizing the financing on those and bringing in third parties, whether it's in SMAs on the production side, or even in many instances where we brought in investors to own the equity along with us, that's all part of the flywheel.
Speaker Change: Well thanks for the question.
James Charles Zelter: This will be a great conversation at our at our October day, but basically we have these 16 platforms.
James Charles Zelter: The top five to seven.
James Charles Zelter: Namely mid cap Atlas.
James Charles Zelter: PK.
James Charles Zelter: Wheels are the great drivers and yes, as we think about running those as a portfolio optimizing the financing on those.
James Charles Zelter: And bringing in third parties, whether it's in SMA on the on the production side or even in many instances, where we brought in investors to own the equity along with us.
James Charles Zelter: So certainly, we think that when we look at what's going on with our platforms and with bringing this integrated toolbox to solutions, to companies, we think that gives us the confidence to take our numbers up from our five-year plan. And, as Marc said, when we did our first investor day, we were 150 in debt by 26. We'll achieve that, but we've sort of now changed the definition of equity and hybrid.
James Charles Zelter: That's all part of the flywheel. So certainly we think that when we look at what's going on with our platforms and with bringing this integrated toolbox to solutions to companies. We think that gives us the confidence to take our numbers up from our five year plan and so as Mark said.
James Charles Zelter: Our first Investor day, it was $1 50 in debt.
James Charles Zelter: Bye Bye 26, we will achieve that but we've sort of now changed the definition of the equity and hybrid.
James Charles Zelter: So in our mind, hitting those 200 plus numbers, the driver really will be how we integrate those platforms. And again, how investors deal with us, whether it's an SMA, whether it's a commingle vehicle, whether it's owning part of the equity, it's all part of the same equation.
James Charles Zelter: So in our mind hitting that that those 200 plus numbers.
James Charles Zelter: The driver really will be how we integrate those platforms.
James Charles Zelter: And again, how investors deal with us whether it's in SMA, whether its a commingled vehicle, whether it's only part of the equity. It's all part of the same equation.
Operator: Thank you. That concludes the Q&A portion of today's call. I will return the floor to Noah Gunn for any additional or closing comments.
James Charles Zelter: Thank you that concludes the Q&A portion of today's call I will return the floor to Noah Gunn for any additional or closing comments.
Noah Gunn: Great, thanks everyone for your time and attention this morning. If you have any follow-up questions on anything we discussed on today's call, please feel free to follow up with us, and we look forward to speaking with you again next quarter.
Noah Gunn: Great. Thanks, everyone for your time and attention. This morning, if you have any follow up questions on anything we discussed on today's call. Please feel free to follow up with us and we look forward to speaking with you again next quarter.
Operator: Ladies and gentlemen, this concludes today's event. You may disconnect your lines at this time or log off the webcast and enjoy the rest of your day.
Speaker Change: Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect. Your lines at this time or log off the webcast and enjoy the rest of your day.
Operator: [noise].
Operator: Yes.
Operator: Okay.
Operator: Yes.
Operator: Yes.
Operator: Okay.
Operator: Yes.
Operator: Yeah.
Operator: Yeah.
Operator: Okay.
Operator: Yes.
Operator: [music].
Operator: Yes.
Operator: Okay.
Operator: Okay.
Operator: Okay.
Operator: Yes.
Operator: Okay.
Operator: Yes.
Operator: Yes.
Operator: Yeah.
Operator: Okay.
Operator: Yes.
Operator: Okay.
Operator: Yes.